According to research on entrepreneurship education, the creation of a business plan is the most popular teaching method (Solomon, 2007). Textbooks in the field will often have a chapter devoted to the contents of the business plan and separate chapters about important elements of a business plan such as marketing, finance, and operations. Instructors must prepare their students for arduous task of writing all of the parts of the business plan within a team.
One of the most challenging aspects of a business plan is the financial projections. Clearly, if an entrepreneurial team intends to present their plan to a group of investors or to compete in the many business plan competitions in the country, they must be able to explain the numbers. The challenge of creating financial projections is compounded by the fact that many non-business students are enrolling in entrepreneurship courses (Katz, 2003). What should they learn about forecasting?
A sales forecasts must be developed as part of the market analysis. The sales forecast becomes the basis for financial projections in the finance section of the business plan. There are different ways to estimate sales, but regardless of which one is used, the entrepreneur must be able to justify the basis for their forecasts. Thus, the sales forecast is subject to the assumptions that were made when estimating sales for the new venture. These assumptions are critical because investors typically study assumption sheets (Barringer and Ireland, 2011).
This study describes an unique cash budget exercise that requires students to conduct sensitivity analysis of the assumptions in their sales forecast. The focus of the exercise is not on how to convert credit sales estimates to cash receipts as is typical in many textbooks. It requires the students to make a connection between their sales estimates and the financial statements they create. The Smoothie Doozie exercise described in this study pushes the learning down to the individual student level and provides a fast track approach to grading the exercise in large class sections that does not overwhelm the teaching faculty member.
Roberts, Gary B. and Heriot, Kirk C.
"Forecasting Demand: Sensitivity Analysis of Financial Assumptions Using MS Excel,"
Atlantic Marketing Journal: Vol. 3
, Article 5.
Available at: http://digitalcommons.kennesaw.edu/amj/vol3/iss3/5